Gerald L. and Erma L. Dunnegan - Page 6

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          activities of J&G Enterprise are reported on a separate                     
          Schedule C.  Two checks in the amount of $2,500 each were written           
          to Big Brothers/Big Sisters.  The checks bore notations that they           
          were for “donations”.  Big Brothers/Big Sisters is a charitable             
          organization.  Big Brothers/Big Sisters assisted J&G Enterprise             
          in finding a place for people to use the fireworks products,                
          provided the labor to help with parking and traffic, and provided           
          labor to meet the customers who came into the retail store.                 
          Petitioners deducted the $5,000 that was paid to Big Brothers/Big           
          Sisters as promotions expense on their Schedule C for J&G                   
          Enterprise in 1993.                                                         
               Among the adjustments determined in the notice of                      
          deficiency, respondent disallowed deductions for bad debts of               
          $370,000 and $246,175 for 1993 and 1994, respectively, on the               
          Schedule C for the “loans and collections” business.  Respondent            
          determined that the net income or loss from the Schedule C                  
          businesses was solely attributable to Mr. Dunnegan for self-                
          employment tax.  Respondent disallowed $5,000 of the promotions             
          expense that related to J&G Enterprise in 1993.                             
               Petitioners expressly conceded some of the adjustments that            
          were determined by respondent in the notice of deficiency.  Those           
          adjustments support the penalties imposed under section 6662(a).            
          All of the other adjustments that were not addressed by                     

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